Debt Restructuring Plan Announced
ORLANDO, Fla., June 17, 2008 – FMPA issued a statement to investors today announcing the Agency’s plan to restructure its debt portfolio to eliminate the use of auction-rate securities and increase the percentage of its debt in fixed-rate securities.
The proposed debt restructuring is expected to be accomplished through seven transactions, including four fixed-rate transactions and three variable-rate transactions. Together the transactions would allow FMPA to refinance more than $871 million of the Agency’s existing $1.3 billion debt portfolio and to issue nearly $305 million in new debt, primarily to fund new power supply facilities.
“We understand that the instability of the auction-rate securities market has become undesirable to many of our investors, so we are taking decisive action to completely exit the auction-rate securities market,” said FMPA General Manager and CEO Roger Fontes. “We believe that the proposed debt restructuring will serve the best interests of both our investors and our ratepayers.”
FMPA has historically included alternative debt structures in its portfolio to reduce debt service costs and increase financing flexibility, with the ultimate goal of reducing costs for its ratepayers. One type of variable-rate debt instrument, known as auction-rate securities, comprises a large portion of the Agency’s current debt portfolio. Auction-rate bonds are those with interest rates that are determined by open-market competitive bidding, which typically occurs every seven, 28 or 35 days. When there are not enough new investors, the auction does not clear and existing bondholders who wanted to sell must hold the securities. Interest rates after non-clearing auctions are set at a level described in Official Statements issued at the initial bond sale. (Detailed information about these securities and their terms and conditions can be found in the Official Statements for each bond issue. Bondholders who wish to obtain a copy of the Official Statements can contact Janet Davis or Edwin Nunez at FMPA.)
In recent months, U.S. financial markets have had a crisis of liquidity and credit, and the market for these auction-rate securities has become increasingly unstable. Auction failures are commonplace throughout the market and have increased interest costs on all of FMPA’s auction-rate securities, prompting the Agency and its Board of Directors to take action.
Debt Restructuring Plan
FMPA’s Board of Directors and Executive Committee voted on March 27, 2008, to authorize the elimination of auction-rate securities from the Agency’s debt portfolio and to achieve a goal of having between 50% and 60% of FMPA’s total debt in fixed-rate obligations.
The Agency’s staff and financial advisor are moving rapidly to implement the Board’s direction. FMPA’s $1.3 billion debt portfolio has many series of auction-rate securities, so the process of exiting the auction-rate market is anticipated to take several months.
“We appreciate the patience and support of bondholders during this transition in the financial markets. We believe our upcoming transactions will be attractive to investors,” said Fontes.
The debt restructuring is expected to be accomplished through seven separate transactions and is expected to impact four of FMPA’s five power supply projects.
Due to the diverse needs of municipal electric systems, FMPA was established as a project-oriented agency. Each power supply project is independent from the others, so no revenues or funds available from one project can be used to pay the costs of another project. Thus, debt must be issued separately for each project.
FMPA’s All-Requirements Project, the largest of the Agency’s projects, provides all the wholesale power needs for 15 members. The All-Requirements Project expects to issue approximately $305 million in new debt, primarily to fund the development of a new natural gas-fired combined cycle power plant. The project plans to refinance approximately $451 million in outstanding debt.
FMPA’s St. Lucie Project is an 8.8% ownership interest in St. Lucie Unit 2, an 838 megawatt nuclear power plant. The St. Lucie Project expects to refinance approximately $286 million in outstanding debt.
FMPA’s Stanton Project is a 14.8% ownership interest in Stanton Unit 1, a 425 megawatt coal-fired power plant. The Stanton Project plans to refinance approximately $35 million in outstanding debt.
FMPA’s Stanton II Project is a 23.2% ownership interest in Stanton Unit 2, a 429 megawatt coal-fired power plant. The Stanton II Project expects to refinance approximately $99 million in outstanding debt.
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Florida Municipal Power Agency (FMPA) is a wholesale power company owned by 30 municipal electric utilities. FMPA provides economies of scale in power generation and related services to support community-owned electric utilities. The members of FMPA serve approximately 2 million Floridians. FMPA’s members include Alachua, Bartow, Bushnell, Chattahoochee, Clewiston, Fort Meade, Fort Pierce, Gainesville, Green Cove Springs, Havana, Homestead, Jacksonville Beach, Key West, Kissimmee, Lake Worth, Lakeland, Leesburg, Moore Haven, Mount Dora, New Smyrna Beach, Newberry, Ocala, Orlando, Quincy, St. Cloud, Starke, Vero Beach, Wauchula and Williston.